Credit Debt Less Than Expected In March

May 7, 2018

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The March report for US consumer credit may prove to be a point of
concern for consumer confidence, as consumer credit notches a second
consecutive month of lower than expected increases. The report revealed
consumer credit climbed by $11.62 billion compared to expectations of $16.0
billion and a previous gain of $10.60 billion. Revolving credit proves again to
be a noteworthy figure, declining the most since the end of 2012. Consumer
credit is not only a noteworthy consumption indicator when measuring
economic growth, but it also reflects upon over-extended leverage which
can contribute to market destabilization if excessive.

The slower increase in consumption can be attributed to a few things but
primarily the slowdown was most prominent in revolving credit, also observed in
the previous month’s report. In total, the first quarter marked a 0.9 percent
annualized decline in credit-card debt outstanding, contrasted with the 10.3
percent surge in the final three months of 2017. This steep decline provides
worrisome insight for consumer confidence, a metric due to be released this
Friday with the University of Michigan Consumer Sentiment report. While
consumer credit and revolving credit continue to decline, non-revolving credit
like student and auto loans grew 6%. This month’s increase in non-revolving
credit marks the third consecutive month of gains around that level. Lending by
the federal government, mainly used for student loans, rose by $2.1 billion in March
before seasonal adjustment. Similarly, student loan balances climbed $30.4
billion in the first quarter. Continued contributions from auto loans resulted
in an increase of $9.1 billion in the January-March period.

While the data may provide a worrisome sign for consumer confidence,
consumption still maintains multiple tailwinds heading into the second quarter.
As gains from tax cuts finally start to materialize in paychecks and employment
reaches record lows, consumers have all the tools they need to increase or
continue spending. Similarly, wage gains continue to climb, albeit erratically.
Despite the report providing meaningful information about the state of the US
consumer and economy, markets remain dominated by geopolitical concerns like
President Donald Trump’s decision on the Iran nuclear deal due Tuesday at 18:00
GMT according to a recent announcement.